Economic models are outdated

Most economic indicators today have little correlation with actual economic health, says Peter Marber in World Policy Institute. Outmoded statistics skew perceptions, leaving us with a distorted worldview and a shaky foundation as a base for policy; if we can’t accurately diagnose the problem, we won’t cure it,” he says.

John de Rosier

One Response

The models are a reflection of economic theory. For example the idea that a large government stimulus would increase economic theory depended on the assumption that the cure was connected to the problem and the belief that the stimulus would be spent on American goods rather than imports. Neither of these beliefs were based on anything other than professional expediency

We had problems in the economy because the business community had no idea about the cost of welfare, environmental regulation and what fraction of their profits would be taken by the government. In short our problem was the result of government induced uncertainty not a deficient amount of aggregate demand.

The theory that rationalized deficient spending was developed when the US was a relatively closed economy. In short the models failed because the theory upon which they were constructed did not apply to this universe.